Emerging energy group Renergen has inked a $25m (R365m) forward sales agreement that forms part of broader plans to allow investors to trade in the rare gas helium, intending to help bring price transparency to what is now an opaque market.
Renergen’s deal with Argonon Helium, a company formed in March for the transaction, will see helium traded like a cryptocurrency, using blockchain technology to create tokens that can be exchanged directly for the gas. Helium, unlike many other commodities, does not at present have a spot market, where assets are traded for immediate delivery. Instead producers rely on contracts.
The aim is to create a “completely democratic market”, where hospitals, for example, can act immediately if they need to top up magnetic resonance imaging (MRI) machines, Renergen CEO Stefano Marani told Business Day.
“Helium is a very tightly controlled market. There about six competitors that are middle men, that handle 90% of helium,” he said. The deal will see Renergen supply up to 100,000 units of helium (a unit represents 4.7kg of the gas) at a varying price structure. After the forward sale of the first 100,000 units of helium, it is intended that any future sales between Renergen and Argonon will be priced based on the spot market.
Renergen secured contracts for 65% of the 5-tonne daily helium production planned for phase 2 of its Virginia Gas Project, SA’s only onshore petroleum development, which has one of the world’s richest recorded helium concentrations. The rest is being left for the spot market, Marani said.
A platform for trading the tokens has not been chosen yet, but will be similar to platforms such as Coindesk. Phase one production is expected to come online in early 2022, with initial volumes of about 350kg of helium a day, while phase two, a more substantial project, is expected to start production towards the end of 2023.
Small Talk Daily’s Anthony Clark said the token could possibly negate the need for Renergen to have major equity issuances to fund phase 2, estimated to cost anything between R8bn to R10bn.
“That’s always been a concern of investors, that as they reach their potential in 2024, they will have to spend huge amounts of money to develop the site,” said Clark.
If Renergen were to tokenise all of the 35% of helium not under contract — a big if — the group could fund the entire phase 2 project, said Clark.
Argonon Helium is incorporated in the US and was founded by Richard Charrington, who began his career in 1980 as a commodity trader in London focusing on soft commodities.
“While 100,000 units is less than 0.1% of the global helium market over the term of our contract, we believe this transaction is a ground-breaking step in bringing helium to the financial markets and will pave the way for its inclusion into more mainstream commodities,” said Charrington.
“Like with so many other commodities, it will start small and is likely to be traded by those who have researched it and understand the future potential with emerging technologies such as quantum computing and in time may become much more mainstream in a similar way lithium did several years ago.”
Helium is critically important for the medical sector and is used for cooling in MRI machines.
The gas is also used in making fibreoptic cables, cooling of nuclear power stations and the propulsion of space rockets. It is a key input for the defence industry, as well as balloons.
In morning trade, Renergen’s shares were up 7.08% to R25.70, on track for its best day since September 1. The group’s shares have more than doubled so far in 2021.
Update: October 18 2021
This article has been updated with share price information and industry comment.
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